Russian Fintech And Their Fight Against Geopolitics

With the investigation into Russia’s involvement in the US election and with Trump being in the media spotlight, other activity in the region is not being recognised on the same scale, especially big events occurring in the fintech industry. I spoke with a couple representatives from financial technology companies that operate in Russia about hubs, mobile payments and the country’s fight against geopolitics.

ID Finance’s co-founder and COO Alexander Dunaev highlighted that Russian technology has been overshadowed by geopolitics. ‘It is difficult to focus on the successes of a rapidly developing yet nascent industry when the headlines are focused on the Western sanctions and the prices of commodities. Despite this, there are a number of very exciting fintech companies and trends that have caught our attention,’ Dunaev said.

According to EY’s Fintech Adoption Index report last year, although Russian online adoption is lower in comparison to major financial centers like London, New York or Hong Kong, the market in this area is growing at a rapid rate. Online payments and money transfers are booming in Russia in the same way that Moscow and St Petersburg are becoming hubs for this form of technology.

‘This has been driven by historical and traditional reasons, as well the strong presence of local platforms such as Yandex.Money, QIWI wallet, Unistream, Korona, Robokassa, and others. The anticipated trend of a sharp increase in fintech adoption requires traditional FS providers to react. All the more so since one of the main reasons for not using fintech services is the lack of awareness,’ the report read.

Dunaev pointed out that these fintechs, some of which are unicorns, have shown that they can generate profit even when operating in an environment where VC funding is scarce. ‘Russian companies show that through meticulous focus on costs and on customers, positive cash flow generation is rapidly achievable,’ he said. He went on to say that the Central Bank of Russia is ahead of the fintech trend in the West when it comes to regulating this space.

‘Consumer finance companies in Russia are regulated by the Central Bank. The regulator is leading the way in regulating cryptocurrencies and blockchain adoption. Central Bank is also establishing a ‘regulatory sandbox’ with the Russian fintech consortium to streamline the adoption of new financial services technologies,’ Dunaev mentioned.

David Waroquier, Partner at Mangrove Capital Partners also highlighted that access to funding in Russia is more limited. ‘This means Russian fintech companies must have a tighter control on costs and be very efficient operationally. Indeed, if technology companies can be successful in Russia then they are well positioned to be successful elsewhere,’ Waroquier said.

As said before, one of the trends that has exploded in Russia is mobile payments. The EY report states that 57.6% of Russians used this service in comparison to the 17.6% globally. There are currently 56 million online mobile users over 16 in the country and according to Gfk, 53% of online users in Russia made at least one mobile payment in the last 6 months, as reiterated by Dunaev.

‘In addition to the high penetration of the electronic wallets provided by the local tech companies, Yandex and QIWI, Russia saw the entrance of new players in the last 12 months - Apple Pay, Samsung Pay and Android Pay working together with the local banks,’ Dunaev said. So, the combination of Russian startups creating their own services and traditional financial institutions working with legacy players could mean that Russia may forge ahead of other global financial centers in terms of development.

Waroquier also mentioned that Russia has strong data science and machine learning talent, both becoming significant in the fintech industry. ‘We’re seeing some great companies out of Russia including including robo-advisors and online lenders. Russia is also relatively advanced in cryptocurrency adoption and regulation,’ so a lot to watch out for.

‘In terms of payment solutions, Russia has also developed some pretty innovative solutions and is ahead of Western markets in certain areas, simply because banks have jumped straight to the most recent technologies and mobile interfaces, while Western banks have innovated in increments,’ Waroquier said. In addition to this, the concept of a fintech hub is important for the industry as both startups and financial institutions need to be able to communicate and work together in close proximity in order to gain success.

The EY report found that both Moscow and St Petersburg had the potential to be fintech hubs, but what is the difference? Dunaev explained that although there are a number of tech and fintech companies that were formed in St Petersburg, Moscow has seen a convergence of talent in recent years. ‘This is an extension of general Moscow-centricity of the Russian economy with most companies having their HQ in the capital. The brightest talent from across the country tend to move to Moscow in search of networking and job opportunities.

‘The most prominent fintech incubators run by the banks (e.g. Alfa Lab) or accelerators (e.g. FinTech Lab) are all based in Moscow. Nevertheless, we are seeing a movement to diversify tech across the country.’

Flitting back and forth between the finance and news industries, I’m now a reporter for leading fintech publication Finextra. I previously managed content and editorial relationships for bobsguide and wrote for sister publication GTNews, now The Global Treasurer, before movi...